HMRC chief David Hartnett has admitted he should have demanded Goldman Sachs pay interest on £24m it owed. Photograph: Sarah Lee for the Guardian

A deal worth at least £10m between banking giant Goldman Sachs and the head of HM Revenue and Customs is set to be challenged in the high court on Wednesday by tax-avoidance campaign group, UK Uncut Legal Action.

The high court in London is expected to hear that a multi-million pound agreement sealed with a handshake between David Hartnett, the head of HMRC, and Goldman Sachs senior employees, which permitted the investment conglomerate to keep back £10m in back taxes, should be quashed under judicial review.

UK Uncut Legal Action have accused customs officials of giving the US multinational giant favourable treatment in a settlement of a tax dispute which saw Goldman Sachs let off £10m in interest payments.

Their accusations were backed by HMRC's own internal minutes from December 2010, showing Hartnett's personal involvement in the deal with top Goldman representatives which allowed the bank to repay only the principal sum owed.

In court papers filed ahead of the permission for judicial review, government barristers argue that HMRC has a duty to keep taxpayer agreements confidential and that many of the claims of the "binding agreement" with the bank are inaccurate in places.

"HMRC's considered view is that disclosure of such confidential information would be detrimental to the proper exercise of its functions," court papers say.

A judgment from the courts will rule on whether the activist group will be allowed to bring a full hearing for judicial review of the deal and could also lead to HMRC disclosing internal documents surrounding the transaction.

Murray Worthy, director of UK Uncut Legal Action said: "There is overwhelming public support from unions, NGOs, MPs and thousands of ordinary people who want to see this dodgy tax deal challenged in the courts. It shows the deep level of outrage that people feel over state sanctioned tax dodging by big business, while the government destroys public services that ordinary people rely on, saying that there is no money.